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HOSPITALITY REAL ESTATE BROKERAGE GROUP MARKET UPDATE SUMMER 2008 INTRODUCTION: We are eager to share with you several exciting activities that have taken place over the past few months. By listening, assessing, and providing strategic real estate solutions to our clients, we have been able to broker sales large and small and stand behind our work through completion. We have been very successful in closing many transactions that presented unique challenges and complications. This Market Update is designed to provide you with knowledgeable insight to aide in your operations, acquisitions, or disposition planning. We are here to assist in every step of the process, as our team is comprised of professionals with financial, banking, and real estate expertise. By understanding every aspect of the process, the Wason Associates team provides a strategic approach to problem-solving, financial structuring, and transaction execution. Please visit us online at www.hospitalityrealestate.com to view a full listing of properties for sale, as well as to learn about how we can help assist you with your next Hospitality Real Estate transaction. CONGRATULATIONS WENDY: We would like to welcome Wendy Casey back from maternity leave and to take the opportunity to congratulate both her and her husband on the birth of their second son, Beckett (talk about avid Red Sox fans!). Wendy has been working with Earle since 2000 and the staff is eager to have her back as a part of the team. Welcome Beckett Casey to the Wason Associates Family! RECENT HAPPENINGS: Nordic Village Luxury Mountain Getaways In December of 2007, the sale of the Nordic Village Luxury Mountain Getaways of Bartlett and Jackson, New Hampshire was brokered by Wason Associates. Owner/developer Robert Cyr, who created the Nordic Village back in the 1980s, sold the property to Danny and Carla Lafayette of Lafayette Hotels, based in Bangor, Maine. Wason Associates was careful to consider Mr. Cyr's desire to find a buyer who shared a similar vision for the resort. Wason, who has helped Lafayette Hotels' purchase a number of properties in the past, was well aware of their proven track record of providing quality hotel operations and a high standard of customer service. Lafayette Hotels now has 25 resorts and franchise hotels in Maine, New Hampshire, and Michigan. The sale included the resorts' many properties, such as the Nordic Highlands Condominiums; the Chateau at Highland Ridge; individual three story condominium units; and substantial recreational facilities. We were able to structure the transaction in such a way that limited Mr. Cyr's tax consequences. The sale was structured as a combination of an installment sale and tax deferred exchange - the benefit was to create annual income and defer a significant part of Mr. Cyr's capital gain tax. Best Western Mystic Hotel | Mystic, Connecticut Earle Wason with cooperation from Edwin Smith, CCIM, a long time commercial Realtor based in Connecticut, recently completed the sale of the 150 room Best Western in Mystic, CT. The Seller, Maine Course Hospitality Group had recently completed a major renovation to the guest rooms and lobby. The transaction included an adjacent Ground Round Restaurant. Maine Course Hospitality Group, based in Freeport, ME (www.mchg.com) provides quality hotel management services. Their portfolio includes the Fairfield Inn & Suites by Marriott, Hampton Inn & Suites, Best Westerns in NH &, ME, and in Scarborough, ME a new Marriott Courtyard and a new Homewood Suites by Hilton. Comfort Inn | Merrimack, New Hampshire The 68 room Comfort Inn in Merrimack, New Hampshire was sold by 242 Merrimack Corp. to Narayan Hotel, LLC for $3,250,000.00. Earle Wason oversaw the transaction with assistance from the Wason team. The previous franchise owners purchased the property in 2000 as a Days Inn. In 2005, it was converted to a Comfort Inn. This involved a major renovation including significant upgrades to all guestrooms and baths, based on design requirements of Choice Hotels International. Best Western Granite Inn | Nashua, New Hampshire The 104 room Best Western Granite Inn located in Nashua, NH was sold on May 1st to Karen Enterprises, an established hotel company based in New Hampshire. Major renovations had been completed to the rooms, lobby, and porte-cochere. Coincidentally, complications arose due to a fire that partially destroyed 50 guest rooms just 3 days after the execution of a purchase agreement. This provoked extensive negotiations by Wason Associates to have the sale closed by May 1st as required. Atlantic Oakes | Bar Harbor, Maine> Owner Earle Wason and Peter Annon, CPA, provided counseling services in the sale of the Atlantic Oakes Bar Harbor, ME. The property features eight distinctive guest buildings and conference facilities for up to 800 people and approximately 700 feet of ocean front. Sellers, the Cough family, contacted Wason Associates to assist, as they had already identified potential buyers. Wason's role was to provide advisory services for negotiations as well as to conduct an internet-based marketing program to generate additional buyer interest of potential regional and national hotel companies. Advisory services included discussions regarding pricing parameters, negotiation strategies, determining allocation of sale price, and reviewing 1031 exchange strategies. SELLING STRATEGIES: We are fortunate to have a broker on staff that is a certified public accountant. Peter Annon, CPA, provides both sellers and buyers assistance in structuring transactions that can benefit them and will work closely with their accounting advisors. With today's market environment in the questionable state it is, the opportunity to utilize creative structured transactions has become more and more frequent. Understanding what steps need to be taken is a difficult task, and having a broker or CPA who understands is an essential part of closing a complicated transaction. Creatively Structured Transactions A strategically structured 1031 exchange that integrates the advantages uniquely associated with a credit tenant property may be the most effective way to maximize cash proceeds of a property sale. Exchange and subsequent finance with non-recourse debt can allow the seller to withdraw proceeds untaxed. An exchange for credit tenant property confers no obligation upon the owner since the rental income from the tenant covers the debt on the loan while property maintenance and management are the responsibility of the tenant. There is no financial responsibility on the owner. Credit based financing enables the exchanger to maximize the cash proceeds of a sale through post-exchange refinancing proceeds. It is possible to finance over 90% of the value of the sale, and then use the refinancing proceeds to purchase new property without the deadline restrictions, and at full basis. An important item to note is that although there is no tax on the exchange it is deferred and a tax will be paid at the eventual outright sale of the property. Also, the act of completing the exchange created considerable tax dollars due to the income of those involved in the transaction such as the brokers, attorneys, lenders, among others, thus tax deferred exchanges can be revenue positive for the taxing authorities. Current Financing Trends National and regional press have aggressively covered the current credit crunch as August of 2007 presented a tightening in financing that mostly affected the larger National Hotel Companies, large Private Equity firms and REITS that rely on Commercial mortgage-backed securities. These CMBS's are structured as non-recourse debt and therefore do not require personal guarantees. Fortunately, we have found that financing has been more readily available through local and regional banks. While the underwriting requires stiffer qualifications, transactions are still being completed in an appropriate time frame. Not only are these banks offering financing, but the rates are quite encouraging. If you are searching through local and regional markets, expect to see rates ranging from 5.7% to 6.5% written on 20 year amortization schedules. Fixed interest terms still tend to be negotiable and vary according to the strength of the buyer and of the transaction. The SBA 504 program continues to be a favorable form of financing as the portion financed by the SBA is locked at a good rate for the term of 20 years. Valuation of Hotels Although the market has changed in the last couple of years, hotel values have remained fairly stable. After taking into consideration the brand level of the hotel, capital improvement required, and the current management skill level the key determinant to hotel value is the analysis of the net operating income and computation of return on investment. Due to the reduction of interest rates, the capitalization rate has only slightly increased. Gross room multipliers have also remained fairly stable over the past few years. Smaller, well run properties may sell at 4 times room revenue, with many selling between 3 and 3.5 times room revenues; some older, more outdated hotels approximate 2.5 times revenue. The prices per room vary so greatly that it is would be inaccurate to use as a value indicator unless comparing a property of a specific brand in similar age and condition. Fortunately, there is still a plethora of motivated and qualified hotel buyers in the market. As long as the price of any hotel makes economic sense, or incorporating an improved management system will result in economic sense, hospitality real estate is going to continue to provide incredibly viable investment opportunities. PREPARING YOUR PROPERTY FOR SALE Although we work with sellers with both long and short term goals, at Wason Associates, we believe that in order to maximize the proceeds of a transaction, owners should start preparing their property up to three years prior to market listing. Everything from managerial matters to a property's structural and physical appearance, as well as cash flow analysis, should be considered in order to reach a targeted selling price. Also, we offer a strong track record for confidential brokerage of hotel facilities in circumstances where the owner is concerned about staffing issues or any negative effects that can be created when a property is openly marketed for sale. As always we are happy to meet in confidence with owners to review values, our marketing program, and brokerage fees. We are confident that when the time has arrived to sell we can achieve the best price possible, within a reasonable period of time, and provide the experience and expertise to comfortably guide you through the selling process. Conclusion Paragraph: We continue to enjoy excellent relationships with some of the fastest growing hotel companies in the Northeast. We look forward to continuing to provide them with the market knowledge, expertise, and skills necessary to help them succeed. The team at Wason Associates continues to provide a strategic, client-centric approach to problem-solving, financial advising, and transaction execution. For additional information on Wason Associates and for updated property listings, please visit hospitalityrealestate.com or call us at 603-766-4982. Register with us! Our website now offers a broad sampling of our hospitality properties for sale. Although, often, there are properties available that cannot be presented online, as they may be unusual offerings that require complex negotiations or creative solutions, extreme confidentiality, or other issues of similar nature. As a potential buyer it is important that you register with our site, as we provide email updates on new sale opportunities as well as emails to inform you when a property has sold. In addition, registered users have the ability to download the disclosure form and access detailed financial information about a particular property of interest. Visit us online at www.hospitalityrealestate.com to view a full listing of properties for sale, as well as learn about how we can help assist you with your next Hospitality Real Estate transaction. CONTACT INFORMATION:
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